Travel insurance - Watchdog gets expanded powers

Economic Secretary to the Treasury, Ed Balls, has announced that the Government intends giving City watchdog, the Financial Services Authority (FSA) the responsibility for regulating the selling of travel insurance sold along with a holiday. The FSA at present only regulates travel insurance sold on a stand-alone basis.

The decision means that consumers of travel insurance sold along with a holiday will be protected by a core baseline of statutory protection provided by FSA regulation.

These protections include a requirement on firms to abide by the FSA's principles, including requirements to conduct their business with due skill, care and diligence; and to treat customers fairly. Consumers will also have access to the Financial Ombudsman Service if things go wrong.

The FSA says it will implement this change in a 'principles-based and proportionate way', minimising the burden on those travel firms that do become FSA authorised.

Travel firms that decide not to seek FSA authorisation will be able to sell travel insurance through an appointed representatives route i.e. the travel firm will be able to sell travel insurance on behalf of a FSA regulated company.

There are additional options available to travel firms that may allow them to provide information on insurance for remuneration and, as part of the Government's consultation; it will be seeking views on whether these freedoms offer travel firms a viable alternative to continue offering insurance services to their customers.

The Treasury says it will implement the new structure in a transitional way, giving the FSA and the industry time to adapt to the new regulatory environment.

It has also exempted from regulation the selling of certain types of insurance by certain sectors, for example, certain additional insurances sold by car hire firms, where the evidence shows that the risk of consumer detriment is low.

Consumers have a 'knowledge gap' in understanding travel insurance as a product and the cover it provides.

Evidence shows they make less informed choices when purchasing travel insurance than other insurance products because: although the travel insurance market is highly competitive, policies tend to be more complicated than a simple household or motor policy. Meanwhile, as a secondary purchase; consumers are less likely to be focussed on the details of their insurance policy than through a direct sale and; the majority of consumers only really seem to consider price, not the details of the policy, in deciding which policy to purchase.

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